Aside from the ongoing impeachment proceeding in the Senate, there is another national issue that is sparking national concern – the inclusion of the Philippines in the Pax Silica initiative. Through this, the Philippines positions itself in the map to become a strategic player in the global technology and artificial intelligence (AI) ecosystem. However, several groups have raised the alarm for the potential adverse effect to the Philippines as far environmental, national security, and economical concern.
What do we know about Pax Silica?
The Pax Silica project is a U.S.-led international initiative aimed at securing and strengthening global AI and semiconductor supply chains through strategic cooperation among allies and trusted partners. The term Pax Silica combines the Latin word pax, meaning peace and stability, with silica, the precursor to silicon. The initiative was announced by the U.S. Department of State in December 2025 and includes twenty-three (23) state signatories. It promotes a shared and trusted ecosystem of AI developers and vendors to revitalise legacy industries and unlock new market opportunities.
Inclusion of the Philippines
The Philippines, one of the oldest allies of the U.S government, has signed the Declaration of Inclusion last April 2026 and is eyeing for the signing of the Agreement in November 2026. Through this, the first AI-native industrial acceleration hub will be constructed within the 4,000-hectare land in the industrial zone of New Clark City maintained and operated by the Bases Conversion Development Authority (BCDA).
The inclusion of the Philippines is motivated by the country’s rich natural and mineral resources, strategic location, and highly skilled local workforce. The establishment of an AI acceleration hub would position the Philippines as a significant player in the global AI industry, as it would attract investment particularly from entities engaged in the semiconductor and energy sectors. In addition to the creation of jobs, it could lay the groundwork for a robust innovation ecosystem capable of attracting foreign investments over the long run.
Enhancing incentive attractiveness
Fiscal incentives often play a decisive role in investment decisions, apart from the availability of natural resources and highly trainable workforce. Recognising this, government officials have indicated that firms locating in Pax Silica may avail themselves of incentives provided under the CREATE MORE Act.
It is worth noting that under the 2026 Strategic Investment Promotions Program (SIPP) signed last May 2026, entities engaged in manufacturing of semiconductors and electronics, energy, and sustainability-driven industries are considered tier 1 activities. These activities are aligned with the requirement of Pax Silica Hub in Tarlac. If an industry or projects falls under SIPP list, it may be eligible for registration with Investment Promotions Agency (IPA) such as the BCDA and Board of Investment (BOI). Once registered and approved, these enterprises may avail themselves of the incentives under the Tax Code, subject to compliance with the requirements of CREATE MORE and IPA concerned.
Among the incentives potentially available are the Income Tax Holiday (ITH) during the early years of operation and, thereafter, either an Enhanced Deductions Regime (EDR) or the Special Corporate Income Tax (SCIT), depending on the applicable incentive package. These measures are intended to reduce business costs and improve project viability, particularly for capital-intensive investments.
Furthermore, purchase of goods and services from local suppliers by registered enterprise may be subject to VAT at zero-rating, provided that such local purchases are directly attributable to their registered activity. The VAT zero-rating also applies on their income payments to non-resident foreign suppliers for services rendered in the Philippines or to non-resident digital service provider. Importation of registered enterprises may also be exempted from the payment of duties and taxes.
Transfer pricing and cross-border tax issues
As Pax Silica is expected to attract multinational enterprises (MNE), transfer pricing will become a key consideration, particularly for cross-border transactions involving digital services, intellectual property, and shared services. Companies must ensure that related-party transactions comply with the arm’s length principle and are supported by adequate transfer pricing documentation. In addition, the Department of Finance is pursuing the proposed Qualified Domestic Minimum Top-Up Tax (QDMTT), which would require large MNEs to pay a minimum effective tax rate of 15% on Philippine-sourced income. This measure aims to preserve the country's taxing rights by ensuring that any top-up tax is collected by the Philippines rather than by foreign jurisdictions.
Furthermore, payments made to non-resident foreign corporations (NRFC) for business profit, royalties, interest, dividends, or other cross-border transactions may qualify for preferential tax rate under the applicable tax treaty. To avail of these treaty benefits, Philippine entities must comply with the relevant administrative requirements, including securing a Tax Residency Certificate from the NRFC, and obtaining a Certificate of Entitlement to Tax Treaty Benefit from the Bureau of Internal Revenue (BIR). Failure to comply with these requirements may result in the denial of the treaty benefit and the imposition of regular tax rates.
Environmental concerns and sustainability issues
Despite the significant economic opportunities associated with Pax Silica, environmental concerns remain an important part of the conversation.
Large-scale industrial and technology developments can place substantial demands on natural resources. Data centres, advanced manufacturing facilities, and AI infrastructure often require significant amounts of electricity, cooling systems, and water resources. These demand from natural resources is on top of the environmental crisis that the Philippines is currently experiencing, such as the worsening effect of El Niño in the Central Luzon that has already affected the current water supply. As a result, environmental groups and local stakeholders have called for greater transparency regarding the project's environmental impact.
Concerns have also been raised regarding land use, ecosystem preservation, biodiversity protection, and potential effects on surrounding communities. These issues are particularly relevant in a country that is highly vulnerable to climate change and environmental degradation.
Concerned groups argue that economic development should not occur at the expense of environmental sustainability. They emphasise the importance of conducting thorough environmental impact assessments and ensuring compliance with environmental regulations before major development activities proceed.
Finding the optimal balance
The long-term success of Pax Silica will likely depend on finding the optimal balance between the requirement and demand of economic and technological advancement, environment stewardship, and protection of the community.
Ecozones, such as those administered by the BCDA, are established by the government to attract foreign investment and stimulate economic growth by providing fiscal incentives. However, the exploitation of natural resources in the pursuit of economic development must be properly regulated and safeguarded against abuse. The government must also ensure that the rights and welfare of local communities are protected, since they are among those directly affected by this initiative. After all, economic success achieved at the expense of the environment and the local community cannot truly be considered a success.
In an era where sustainable growth has become a global imperative, Pax Silica offers the country a chance not only to participate in the future economy but also to help shape what responsible development should look like.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 28 July 2026
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